Concept introduction:
Cost Volume Profit (CVP) Analysis:
The Cost Volume Profit analysis is the analysis of the relation between cost, volume, and profit of a product. It analyzes the cost and profits at the different level of production, in order to determine the breakeven point and required the level of sales to earn the desired profit.
Contribution margin means the margin that is left with the company after recovering variable cost out of revenue earned by selling smart phones. The formula for contribution margin is as follows:
Contribution margin = Sales - Variable cost.
Similarly contribution margin ratio = Contribution/sales
Breakeven Point:
The Breakeven point is the level of sales at which the net profit is nil. It can be explained as a situation where the business is generating a sale that is equal to the expenses incurred and hence no
To calculate:
The Breakeven units
Want to see the full answer?
Check out a sample textbook solutionChapter 6 Solutions
Managerial Accounting
- Fast as Lightning is an oil change service drive-through that charges each customer $24.00 for an oil and filter change service. Fast as Lightning has found that it costs its business $15.00 per oil and filter change. Monthly fixed costs are $44,000; current sales are 8,000 services. a. Compute the breakeven sales in units.b. Compute the margin of safety in units and sales dollars.c. Compute the margin of safety as a percentage.d. Compute the operating leverage factor.e. Compute the percentage of operating income decline if sales fall by 18%.arrow_forwardDana's Ribbon World makes award rosettes. Following is information about the company: Variable cost per rosette Sales price per rosette Total fixed costs per month $ 3.00 6.00 6000.00 Required: 1. Suppose Dana's would like to generate a profit of $1,160. Determine how many rosettes it must sell to achieve this target profit. 2. If Dana's sells 2,180 rosettes, compute its margin of safety in units, in sales dollars, and as a percentage of sales. 3. Calculate Dana's degree of operating leverage if it sells 2,180 rosettes 4a. Using the degree of operating leverage, calculate the change in Dana's profit if unit sales drop to 1,853 units. 4b. Prepare a new contribution margin income statement to verify change in dana's profit.arrow_forwardCalculating a Target Cost Yuhu manufactures cell phones and is developing a new model with a feature (aptly named Don't Drink and Dial) that prevents the phone from dialing an owner-defined list of phone numbers between the hours of midnight and 6:00 a.m. The new phone model has a target price of $370. Management requires a 10% profit on new product revenues. Required: If required, round to the nearest dollar. 1. Calculate the amount of desired profit. $ 2. Calculate the target cost.arrow_forward
- Outback Outfitters sells recreational equipment One of the company's products, a small camp stove, sells for $130 per unit. Variable expenses are $91 per stove, and fixed expenses associated with the stove total $179,400 per month. Required: 1. What is the break-even point in unit sales and in dollar sales? 2. If the variable expenses per stove increase as a percentage of the selling price, will it result in a higher or a lower break-even point? (Assume that the fixed expenses remain unchanged.) 3. At present, the company is selling 18,000 stoves per month. The sales manager is convinced that a 10% reduction in the selling price would result in a 25% increase in monthly sales of stoves. Prepare two contribution format income statements, one under present operating conditions, and one as operations would appear after the proposed changes. 4. Refer to the data in Required 3. How many stoves would have to be sold at the new selling price to attain a target profit of $70,000 per month?…arrow_forwardOutback Outfitters sells recreational equipment One of the company's products, a small camp stove, sells for $130 per unit. Variable expenses are $91 per stove, and fixed expenses associated with the stove total $179,400 per month. Required: 1. What is the break-even point in unit sales and in dollar sales? 2 If the variable expenses per stove increase as a percentage of the selling price, will it result in a higher or a lower break-even point? (Assume that the fixed expenses remain unchanged.) 3. At present, the company is selling 18,000 stoves per month. The sales manager is convinced that a 10% reduction in the selling price would result in a 25% increase in monthly sales of stoves. Prepare two contribution format income statements, one under present operating conditions, and one as operations would appear after the proposed changes. 4. Refer to the data in Required 3. How many stoves would have to be sold at the new selling price to attain a target profit of $70,000 per month?…arrow_forwardWild-Water Works Water Park provides for a fun day by offering a variety of rides. Wild-Water Works Water Park sells tickets at $75 per person as a one-day entrance fee. Variable costs per person are $34 and fixed cost amount to $221,100 per month. Wild-Water Works Water Park expects to sell 7,500 tickets. Find break-even first, then compute the margin of safety in tickets and sales in dollars. Net sales revenue per unit - Variable costs per unit = Unit contribution margin 1607 + (Fixed Costs +Target Profit) / Contribution Margin per unit = Required Sales in Units = Expected Sales Break-even sales = Margin of safety in units Margin of safety in units X Sales price per unit = Margin of safety in dollars X ||arrow_forward
- A company buys, sells, and repairs computer screens. Repairs screens for $8 per unit Fixed cost of equipment to repair screens is $400 Variable cost for screens fixing is $5 per unit 1) find a profit model. 2) find the break-even point for sales. Answorarrow_forwardWild-Water Works Water Park provides for a fun day by offering a variety of rides. Wild-Water Works Water Park sells tickets at $74 per person as a one-day entrance fee. Variable costs per person are $34 and fixed cost amount to $222,300 per month.Wild-Water Works Water Park expects to sell 7,900 tickets. Find break-even first, then compute the margin of safety in tickets and sales in dollars.arrow_forwardRed Hawk Enterprises sells handmade clocks. Its variable cost per clock is $6.50, and each clock sells for $16.00. Required: Calculate Red Hawk's unit contribution margin. Calculate Red Hawk's contribution margin ratio. Suppose Red Hawk sells 2,050 clocks this year. Calculate the total contribution margin. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Suppose Red Hawk sells 2,050 clocks this year. Calculate the total contribution margin. Note: Round your answers to 2 decimal places.arrow_forward
- Homeward Hardware buys cat litter for $6 less 20% per baq. The store's overhead is 45% of cost and the owner requires profit of 20% of cost. 1. For how much should the bags be sold? 2. What is the amount of markup included in the selling price? 3. What is the rate of markup based on selling price? 4. What is the rate of markup based on cost? 5. What is the break-even price? 6. What operating profit or loss is made if a bag is sold for $6?arrow_forwardOutback Outfitters sells recreational equipment. One of the company's products, a small camp stove, sells for $120 per unit. Variable expenses are $84 per stove, and fixed expenses associated with the stove total $ 154,800 per month. Required: What is the break - even point in unit sales and in dollar sales? If the variable expenses per stove increase as a percentage of the selling price, will it result in a higher or a lower break - even point? (Assume that the fixed expenses remain unchanged.) At present, the company is selling 17,000 stoves per month. The sales manager is convinced that a 10% reduction in the selling price would result in a 25% increase in monthly sales of stoves. Prepare two contribution format income statements, one under present operating conditions, and one as operations would appear after the proposed changes. Refer to the data in Required 3. How many stoves would have to be sold at the new selling price to attain a target profit of $77,000 per month? Complete…arrow_forwardTiktok Company distributes a lightweight lawn chair that sell for P150 per unit. Variable costs are P60 per unit, and fixed costs total P1,800,000 annually. Required: 1. What is the product's CM Ratio?2. Use the CM ratio to determine the break-even point in sales pesos.arrow_forward
- Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning